Is your income a red flag for the IRS?

Is your income a red flag for the IRS?

The American Dream—being able to pull yourself up from nothing, work hard, become successful, and earn as much money as you are able to. That’s all fine in theory, but the IRS doesn’t trust that you will share that hard earned money with them. Apparently they believe that if you make over a certain amount you will be more inclined to hide it.

The IRS was once again “evaluated” by the Treasury Inspector General for Tax Administration (TIGTA). More times than not, TIGTA finds issues with how the IRS is performing (or not performing) and often the results are to the taxpayer’s advantage. For example recently it was discovered that the IRS had holes in their security that needed to be patched up to protect taxpayer identity breaches.

This most recent evaluation however, resulted in recommendations suggesting that the IRS is not working hard enough to go after the high-income taxpayers; those earning $200,000 to $399,000. Although the agency devotes almost 50% of its resources to this segment of taxpayers, the results of the audits apparently aren’t providing the return on investment they hoped for. TIGTA notes the IRS demonstrates inefficiency of allocation resources at $200,000 threshold.

TIGTA concludes that the more money a taxpayer earns, the odds for non-compliance with tax laws increases due to the complexity of the financial holdings. Maybe. But it is also true that higher income translates to more resources to fight IRS interrogations so it could be a wash in terms of who the IRS wants to go after. Big fish=potentially a big payday for the IRS. Small fish=lots of work for almost guaranteed small change.

Through its Large Business and International Division LB&I), the IRS established the Global High Wealth (GHW) Industry that digs deeper into the holdings of high-earners by not just examining the individual income tax returns, but also examining the entities that the taxpayers control. It is not clear what the impact of the GHW and two other resources used by the IRS will be since the IRS information systems are not yet sophisticated enough to quantify the audit performance.

The point is that if you make more than $200K, the IRS is determined to track you down and squeeze every dime it can from you regardless of their cost in time, money, and resources. How can we blame Americans for calling it quits and expatriating to a place that won’t steal them blind?